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Handbook of New Institutional Economics pp 319–348Cite as

Vertical Integration

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Understanding the factors that determine which types of transactions are mediated through markets and which within hierarchical organizations called firms has been an important subject of theoretical and empirical work in microeconomics generally and central to work in New Institutional Economics (NIE) in particular for at least the last 25 years. This essay reviews research that examines the choice between governance of vertical relationships involving suppliers of intermediate goods and services (“upstream”) and the purchasers of those goods and services (“downstream”) through some form of market-based contractual arrangement versus governance within an organization through vertical integration. My primary emphasis is on the transaction cost economics (TCE) framework for understanding the choice of governance arrangements, though I will briefly discuss several other theories of vertical integration as well.

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Authors and Affiliations

  1. Massachusetts Institute of Technology, USA

    Paul L. Joskow

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  1. Paul L. Joskow
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Editors and Affiliations

  1. Université de Paris, 106 Bd de l’Hôpital, 75647, Paris, France

    Claude Ménard

  2. The Ronald Coase Institute, 5610 Wisconsin Ave, 20815, Chevy Chase, MD, USA

    Mary M. Shirley

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Joskow, P.L. (2008). Vertical Integration. In: Ménard, C., Shirley, M.M. (eds) Handbook of New Institutional Economics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-69305-5_14

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